Pandora Grabs Ears, Makes Money (P, SIRI, AAPL, AMZN, GOOG, RIMM)

Internet radio company Pandora Media Inc. (NYSE: P) reported that listeners spent 1.8 billion hours tuned in last quarter, an increase of 125% from the same period a year ago. Converting those hours into dollars remains problematic, but may be turning up.

Pandora posted a net EPS loss of -$0.04, but adjusted to exclude certain items the company showed an EPS gain of $0.02. Revenue totaled $67 million, an increase of 117% year-over-year. Advertising revenue totaled $58.3 million, while subscription revenue rose to $8.7 million — both more than double revenues from a year ago. Analysts were expecting non-GAAP EPS to break even, and revenue of $60.26 million.

Sirius XM Radio Inc. (NASDAQ: SIRI) which offers live on-air talent as opposed to Pandora’s algorithmic DJs reported EPS of $0.03 earlier this month on net income of $173 million. Pandora and Sirius are the two radio analogs, while music locker services from Apple Inc. (NASDAQ: AAPL), Amazon.com (NASDAQ: AMZN), and Google Inc. (NASDAQ: GOOG) allow users to store private collections in the internet cloud and play them back on any internet-connected device. Research-in-Motion Ltd. (NASDAQ: RIMM) announced a streaming service earlier this week, similar to that offered by Spotify and Rhapsody, but any subscribers to the RIM service will only have signed up by mistake.

When Sirius XM reported quarterly earnings on August 2nd, the company also indicated that it would be raising subscription fees now that the federal restriction on its pricing has expired. When the Sirius and XM Radio merged they were the only game in town. Pandora, which delivers its ‘signal’ over the internet, doesn’t require special hardware as does Sirius XM, only that a subscriber have an internet-connected device.

That’s why the increase in Pandora’s advertising revenue is so interesting. Where Sirius XM appears to depend on subscriptions, Pandora depends on advertising. Right now, Sirius XM claims 21 million subscribers who paid about $640 million in fees during the most recent quarter. Advertising revenue amounted to $18 million. Pandora had three times the ad revenue of Sirius XM, but just a tiny fraction of the larger company’s subscriber fees.

Pandora raised guidance for its third quarter and for the full 2012 fiscal year ending January 31st. For the third quarter, the company estimates revenue of $69.5 million to $72.5 million, compared with existing analysts’ consensus of $68.2 million. EPS is expected to be between break even and a loss of -$0.02. For the fiscal year, revenue is expected to reach $270-$275 million, above the existing estimate of $259 million. Full-year non-GAAP EPS is expected to be negative, with a loss of in the range of -$0.07 to -$0.05.

Pandora posted content acquisition costs in the quarter of $33.7 million, compared with Sirius XM’s revenue sharing and royalty payments of $134 million. Pandora pays far more than Sirius XM for the rights to play music, and unless it can reduce those costs, Pandora is in for a struggle.

But all’s well today, with Pandora trading up more than 4% in the pre-market, at $13.00, within a trading range of $11.00-$26.00. Sirius XM shares are down more than -1%, at $1.69, in a 52-week range of $0.95-$2.44.

Paul Ausick